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In these days of debt and deficit, Illinois is in the first rank
of problem states.

Last January the state legislature was finally forced to confront
the fruit of decades of irresponsible spending policies and try
to plug a $13 billion dollar hole, made up in part of $6 billion
in unpaid bills to social service agencies, schools, funeral
homes and other vendors, as well as $4 billion in missed payments
to pension funds.

The outlook was grim enough that Moody's ranked Illinois with
California as the states with the lowest credit rating, although
unlike California, Illinois had a negative outlook. Last
year, the failed drug state of Mexico had a higher credit rating.

“The state has been spending $3 for every $2 it takes in, and
borrowing to cover its current operating expenses,”
warned Miles White, chairman of Illinois based Abbot
Laboratories and of the Civic Committee of the Commercial Club of
Chicago in an address last September.

After tumultuous debate, in mid January Governor Quinn
signed a tax bill that increased the personal income tax rate by
67 percent and the corporate rates by 46 percent, retroactive to
Jan. 1. A provision that would have granted property tax relief
was dropped as state senators sought enough votes to pass the
bill.

The tax hike passed both the Illinois House of Representatives
and Senate without a single Republican vote, but Democrats
promised that the legislation had built in mechanisms to keep
future spending in check and that the new tax rates would be
reduced after four years.

So what's happening in the aftermath? Well, in early May
the Illinois state Senate passed a bill to make it easier for the
children of illegal immigrants to
attend universities by participating in state-run
prepaid tuition and college savings programs. So much for curbing spending.

Now Democrat Pat Quinn is pushing what he calls a debt
"restructuring," plans to issue billions of dollars
of bonds which Republicans are unlikely to
approve. For this scheme, the Governor faces a three-fifths
majority vote requirement for passage in the legislature.

"This is not new borrowing," said Quinn spokeswoman Kelly
Kraft on Thursday. "The state of Illinois has a backlog of
bills and in order to pay these bills we have proposed
restructuring them at a lower interest. We will continue to work
with legislators on the important issue of paying these bills in
a timely manner."

Moody's Investors Service continues to rate Illinois at the
lowest level among states (A1 with a negative outlook), and said
issuing long-term debt to pay bills "would significantly increase
the state's bonded debt burden."

What else?

Well, in addition to the worst bond rating in the country, the
state lost the most jobs of any state last month.
The Illinois Policy
Institutereported the grim news that
"Illinois lost more jobs during the month of July than any other
state in the nation, according to the most recent Bureau of Labor
Statistics report. After losing 7,200 jobs in June, Illinois lost
an additional 24,900 non-farm payroll jobs in July. The report
also said Illinois’s unemployment rate climbed to 9.5 percent.
This marks the third consecutive month of increases in the
unemployment rate."

What is significant is the correlation between the January tax
increase and the downward employment spiral as seen in the chart
above. The graph could have been pulled from an Arthur
Laffer textbook to illustrate the futility of trying to cover the
sins of profligate spending by raising taxes.

The jobs started to go away just when the state's Democrats
enacted these punishing new rates rather than "eat their peas"
and accept the inevitable medicine of austerity and spending
cuts. It's often said that we have a spending problem and not a
tax problem, and this chart would seem to be just another
illustration of the disease.